Amazon Q2: Faster Delivery, Expanded Prime Benefits, Less Discounting Than Rivals

By focusing on operational efficiencies and managing costs it can control, Amazon said Thursday (July 28) that faster delivery times, improved availability of inventory and a better customer experience for Prime users helped it mitigate many of the economic headwinds that are roiling its rivals.

Where Walmart announced this week that it was lowering its outlook and ramping up promotions as a result of consumers spending more in groceries, Amazon said its inflationary woes were largely limited to pricier fuel for its trucks and increased electricity rates that power its data centers, yet saw no real slackening in demand or build-up of unwanted inventory that would require deep discounting.

“We’re not seeing some of the pressures that other people are seeing right now,” Amazon CFO Brian Olsavsky told analysts on the company’s second quarter earnings call.

While he acknowledged the very difficult macroeconomic state, Olsavsky also pointed out that so far, Amazon has not been impacted by it that badly, pointing to the recent record sales results during Prime Day earlier this month.

“We’re not seeing it hit our businesses directly,” Olsavsky said. “In fact, we’re seeing strong growth in sales for the quarter but we’re cognizant that things could change quickly.”

Pumping the Prime

The growth, expansion and improvement of Amazon Prime — and the bundle of services that come with it — continues to be a core company focus that is proving to be both resilient and beneficial during challenging times.

“We’ve seen stronger usage of Prime benefits by Prime members and a greater reliance on Amazon for their shopping and entertainment,” Olsavsky said, highlighting quarter-over-quarter improvements in delivery speed, inventory and stock levels, overall customer satisfaction as well as its growing portfolio of physical stores.

To further solidify the value proposition that the subscription service offers in light of recent fee increases in the U.S. and Europe, Amazon continued to pile on the perks in Q2, with the inclusion of such benefits as free GrubHub food delivery for a year, NFL Thursday Night Football, and range of award-winning original and licensed content.

The convenience of fast, free delivery is also supporting the Prime subscriber base, although the company does not disclose the numbers. Even so, the extension of that benefit is rippling through its marketplace and fulfillment business, where it said third party sellers represented a record 57% of all units sold on Amazon in the second quarter.

Products vs. Services

Officially, Amazon said its North American sales were up 10% in Q2 to $74 billion, which amounts to about 60% of total revenues, which themselves rose 7% to $121 billion.

Within that topline figure, the company’s AWS cloud computing unit saw continued uptake of its services, with sales up 33% for the three months ending June 30.

Despite recent warnings that suggested businesses and governments were reining in tech spending, AWS generated $19.7 billion in sales in Q2, accounting for 16% of Amazon’s total revenue — up from 13% a year ago — while delivering nearly $6 billion in profits, which helped soften Amazon’s $3 billion blow from the write-down of its stake in EV-maker Rivian.

“We believe we’re still in the early stages of enterprise and public sector adoption of the cloud,” Olsavsky said. “We see great opportunity to continue to make investments on behalf of AWS customers,” he said, pointing to plans to invest in new infrastructure to meet demand, develop new AWS services and expand it to new regions.